Big Business Monopolizing AM & FM Radio?

[davideduardo]

> > 11,000 are commercial. A huge number of the non-coms are
> NPR
> > controlled (talk about a de facto consolidation) or by
> > religious organizations.
> > >
> >
>
> Yeah, but NPR doesn't own them, do they?

That is why I said "de facto" and not "de jure."

 

[Goat Rodeo Cowboy]

Re: Radio had the w4rong business model.

> Half of all US radio stations were
> not profitable pre-consolidation, so there was obviously
> something wrong with the business model that needed fixing.
>
What an interesting, busy thread this has become!!!

Let me play devils advocate on this "not profitable" issue. Stations that are not owned by publicly held corporations have traditionally shown low profit or no profit. Go back 40 years when corporate income taxes were high and subchapter-S corps had not bloomed and flowered. Owners paid salaries to their wives, their children and whatever to avoid the taxes. Major stockholders in family owned stations sometimes find ways to keep profits down to keep from spreading the money amongst the minor stockholders.

Even today there are ways I would keep my taxable profits low. My self directed IRA or 401k might buy the building and charge the station as high a rent as my tax man thinks the IRS will allow. I put the max contribution in my IRA my salary will allow, and stuff even more money in beyond that through the rent arrangement. On paper the FCC report would say I am an unprofitable station. I don't report to the FCC what my PERSONAL income is, or how much I put into tax shelters.

If I had a group of 12 to 15 stations, I might set up an offshore company in the Cayman Islands to sell programming services. My stations would pay good strong prices for program elements which I produce at low cost, or buy from traditional music services. The stations may look to be unprofitable, but my Cayman Islands entity is fat and smug.

The fact that the FCC reports that stations are unprofitable is not trustworthy data to evaluate industry trends and policies.

 

[davideduardo]

Re: Radio had the w4rong business model.

> > Half of all US radio stations were
> > not profitable pre-consolidation, so there was obviously
> > something wrong with the business model that needed
> fixing.
> >
> What an interesting, busy thread this has become!!!
>
> Let me play devils advocate on this "not profitable" issue.
> Stations that are not owned by publicly held corporations
> have traditionally shown low profit or no profit. Go back
> 40 years when corporate income taxes were high and
> subchapter-S corps had not bloomed and flowered. Owners
> paid salaries to their wives, their children and whatever to
> avoid the taxes. Major stockholders in family owned
> stations sometimes find ways to keep profits down to keep
> from spreading the money amongst the minor stockholders.

This is true in smaller markets, where many owners in the past had, essentially, guaranteed lifetime employement and all the car and restaurant trade they could get. However, even the smaller markets became very difficult as 80-90 and the changes in AM rules allowed more stations in.

Even in the 60's, many stations were coroprations with multiple stockholders so only a portion of the ones that made no money were to avoid double taxation.

In the rated markets. stations were usually owned by corporations and had multiple owners and were "bigger" than the kind of operation that distributes profits as salaries and consulting fees.
>
> Even today there are ways I would keep my taxable profits
> low. My self directed IRA or 401k might buy the building
> and charge the station as high a rent as my tax man thinks
> the IRS will allow. I put the max contribution in my IRA my
> salary will allow, and stuff even more money in beyond that
> through the rent arrangement. On paper the FCC report would
> say I am an unprofitable station. I don't report to the FCC
> what my PERSONAL income is, or how much I put into tax
> shelters.

Keep in mind that the average gross income for a US radio station in the last year of reporting was less than $500,000. That is half of what the average Pizza Hut sold, gross, in the same year.
>
> If I had a group of 12 to 15 stations, I might set up an
> offshore company in the Cayman Islands to sell programming
> services. My stations would pay good strong prices for
> program elements which I produce at low cost, or buy from
> traditional music services. The stations may look to be
> unprofitable, but my Cayman Islands entity is fat and smug.

Nobody does that.
>
> The fact that the FCC reports that stations are unprofitable
> is not trustworthy data to evaluate industry trends and
> policies.

Some of us have a lot of experience at the station level, ranging from markets of under 20 thousand up to much bigger ones. Most small stations do not make enough to make tax dodges worthwhile, as the cost of setting up such devices requires lawyers, etc.

 

[RichWood]

> > 11,000 are commercial. A huge number of the non-coms are
> NPR
> > controlled (talk about a de facto consolidation) or by
> > religious organizations.

> Yeah, but NPR doesn't own them, do they?

No. NPR is a network. Most NPR stations are owned by schools or other non-commercial institutions. WGBH, Boston, is owned by the Lowell Institute Cooperative Broadcasting Council. It's made up of nearly every school and museum in the city. At least it was when I worked there.

Rich

 

[RichWood]

Re: Radio had the w4rong business model.

> If I had a group of 12 to 15 stations, I might set up an
> offshore company in the Cayman Islands to sell programming
> services. My stations would pay good strong prices for
> program elements which I produce at low cost, or buy from
> traditional music services. The stations may look to be
> unprofitable, but my Cayman Islands entity is fat and smug.

I used to be Director of Station Relations for ABC. Your scenario is nice for conspiracy theorists but I knew my affiliates. Many were just getting by. They were owned by individuals and often run by the entire family. The station where I started was owned by 3 businessmen who lived in the city. Later it was sold to the former GM of WJR. He and his wife ran it for a number of years and moved to the city of license. They increased its power from 1Kw to 50Kw.

It's now owned by Clear Channel. Much deeper pockets than any of its previous owners.

Rich

 

[Goat Rodeo Cowboy]

Re: Radio had the w4rong business model.

> I used to be Director of Station Relations for ABC. Your
> scenario is nice for conspiracy theorists but I knew my
> affiliates. Many were just getting by. They were owned by
> individuals and often run by the entire family.

Rich, I am familiar with your track record and I have far too much respect for your track record to carry on a debate in which I am simply guessing.

I do not know of Edward Duardo, but I looked at his website and I am impressed that he, too, knows a lot more about the nuts and bolts of this business than I ever hoped to know.

Having said all that, I did run a station a number of years back where the owners DID siphon out the profits in such a way that they were taxed for the gain in some other entity where they had maximum tax advantage. My bonus was calculated on pre-tax cash flow so the fact that the station I was running and it's corporation showed up in the FCC records as marginally profitable.

My observation of how people move profitability around was honed while running a gas station, while working for a Chevrolet dealer, while working for a nursing home company, and while keeping books for some crop dusters.

I'm not talking conspiracy theory. What you are trying to convince me is that broadcasters aren't as innovative as gasoline retailers, Chevy dealers and crop duster pilots. I'll bet there are a few broadcasters out there who are.

P.S.- Write this comment off as conspiracy theory if you like, but I would suggest there might be a handful of broadcasters our there, who like my Chevy dealer and one of my gasoline competitors, was cooking the books down to reduced profits to fund their extra-marital affair. Nah, on second thought... no broadcaster would ever lie to his wife about the stations finances. Sorry I brought that one up.

 

[davideduardo]

Re: Radio had the w4rong business model.

>
> P.S.- Write this comment off as conspiracy theory if you
> like, but I would suggest there might be a handful of
> broadcasters our there, who like my Chevy dealer and one of
> my gasoline competitors, was cooking the books down to
> reduced profits to fund their extra-marital affair. Nah, on
> second thought... no broadcaster would ever lie to his wife
> about the stations finances. Sorry I brought that one up.
>

The difference in the 60's throught the 90's is that any lying would also translate into lying on FCC reports. That, called "lack of candor," is a revocation offense. This kind of stuff puts the license,a nd theus the entire asset, at risk.
>

 

[RichWood]

Re: Radio had the w4rong business model.

> Rich, I am familiar with your track record and I have far
> too much respect for your track record to carry on a debate
> in which I am simply guessing.
>
> I do not know of Edward Duardo, but I looked at his website
> and I am impressed that he, too, knows a lot more about the
> nuts and bolts of this business than I ever hoped to know.

I know David. You can take what he says to any bank in the world. He knows his stuff.
>
> Having said all that, I did run a station a number of years
> back where the owners DID siphon out the profits in such a
> way that they were taxed for the gain in some other entity
> where they had maximum tax advantage. My bonus was
> calculated on pre-tax cash flow so the fact that the station
> I was running and it's corporation showed up in the FCC
> records as marginally profitable.

As Enron, MCI, Tyco, Halliburton and others have shown, there are sleazy folks in any business. However, most small stations have a very hard time making ends meet. It's going to get worse a couple of decades from now when IBUZ secondaries fight existing stations for audience. Look at it as doubling or tripling the number of FM stations if there are ever enough receivers in place to make them receivable.

Rich

 

[RichWood]

> My observation from here in the Dallas area matches yours
> for Los Angeles. Yeah, there are locally owned stations
> even in the major markets -- but they tend to be on the
> weakest, most limited signals. When one looks at the AM and
> FM signals that can really cover the entirety of a large or
> medium market, these are overwhelmingly in the hands of the
> media giants.

Has it occurred to you that the media giants couldn't have gotten to be giant unless the previous owners sold to them? If every owner had been terribly concerned about consolidation they wouldn't have taken the money and retired early to some sunny climate.

Rich

 

[davideduardo]

Re: Radio had the w4rong business model.

>
> I know David. You can take what he says to any bank in the
> world. He knows his stuff.

An important thing for readers of this thread for note is that both rich and I are reasonably experienced and successful "players" in radio. Interestingly, we have boht programmed, worked in networking and syndication and done both talk and music radio.

Yet on a number of things, we use different techniques to achieve our goals and can defintely see things from different perspectives.

There is no "one size fits all" solution to radio programming or even to sales and management. And there is the key point: we may have different ways of achieving goals, but we both know how not to do things and the things that have a time honored tradition of never working.
>
>
> As Enron, MCI, Tyco, Halliburton and others have shown,
> there are sleazy folks in any business. However, most small
> stations have a very hard time making ends meet. It's going
> to get worse a couple of decades from now when IBUZ
> secondaries fight existing stations for audience. Look at it
> as doubling or tripling the number of FM stations if there
> are ever enough receivers in place to make them receivable.

This is one of the areas where Rich and I disagree! We are going to get Tom Ray and Leonard Kahn to moderate our debate.

 

[RichWood]

> How many corner delis do you have any more?

You may want to rethink this analogy. In New York there are thousands of them. Same with Chinese restaurants.

In my last New York City neighborhood there were delis on three of the four corners of the intersection.

I lived in Dallas. Like Los Angeles, it's a sprawling city without the neighbothood makeup of New York. Maybe pizza joints are more appropriate. There are still thousands of them unaffiliated with big chains.

Rich

 

[RichWood]

Re: It Ain't Just the FCC

> It said that the FCC performs four major functions:
>
> 1. Spectrum allocation
> 2. Creating rules to promote fair competition and protect
> consumers where required by market conditions
> 3. Authorization of service
> 4. Enforcement
>
> It's the second point where I feel the FCC has fallen far
> short and could do more.

Please! Don't get the FCC involved in anything creative. Lawyers and Politicians create little more than useless paper, especially when they're appointed for little more than their contribution to getting a President elected.

In most cases, lack of fair competition results from a player not playing fair. That becomes an FTC issue. The FCC still limits the percentage of the market a company can control.

I will agree that stock market controlled corporations don't tend to be very creative. I'll also note that poor Mom and Pop operations often can't afford to be creative. From my days in network radio I know many of the major players. The larger the market the more risk you take. New York is the least creative market in the industry. If you make a mistake there, you may never be able to recover, especially if you're an AM. WCBS-FM may be a perfect example.

Rich

 

[RichWood]

Re: The Difference

> Only in theory. Unless you have a gazillion dollars and can
> operate at a loss (literally hemoraging money) for a decade
> or so, you can't build a competing newspaper to a major
> daily. Maybe there's no FCC, but there are local laws and
> rfegulations about building a giant, multi-acre printing
> plant.

The major dailies are being eaten alive by small suburban papers. Why do you think major papers have multiple suburban editions? I think you'd have a much better chance of finding a site for a large printing plant than a tower site.

I could make the same gazillion dollar, operating at a loss, hemoraging money argument about WINS, New York. Westinghouse waited a long time for its all news format to take off. It was probably the last serious risk New York radio has taken. At least WFAN (almost all sports) had Don Imus from the former WNBC.

Rich